If there’s one thing missing from shopping for a mortgage loan, it’s transparency. You would think getting a mortgage would be close to shopping for a gallon of gas, but it’s more like shopping for a car. Blech. By this I mean you and the salesperson (broker) are at odds – you want the lowest price, and they want the highest price (and therefore fattest commission). But just like shopping for a car, information is the best weapon. What is the invoice price? What factory discounts or incentives are out there? What are other dealers asking?
The good news is that there are a few brokers and lenders out there who are working with more transparency. Most of these are listed on the Mortgage Professor’s website, which is a good source of information overall.
Upfront Mortgage Brokers
Basically, the appropriate analogy here is that your car salesman has agreed to a fixed commission (say, $500) no matter what car they end up selling you. You know both their fee, and they will share what wholesale rates are available. Therefore, the only incentive left is to get you a loan type that fits so you can recommend them to your friends. You can find a list of Upfront Mortgage Brokers (UMBs) here.
One problem here is that there may be a lack of local UMBs in your area. Second, I have found that some brokers are more “upfront” than others. I feel that they should simply list their fees openly and directly (i.e. 1.5% of loans below $500,000), instead of having to submit an application first and jump through hoops.
Upfront Mortgage Lenders
Many rate comparison sites include a bunch of teaser rates that nobody can actually get. Either their credit is mysteriously not good enough, or that rate “just expired – sorry!”. What we want are real-time rate quotes, and guaranteed lender fees! The car analogy here is that you want the price quoted to be “set in stone”. No waffling at the very end and tacking on fees like “rust-proofing” or “documentation fees”.
This is exactly what Upfront Mortgage Lenders (UMLs) are meant to provide. All UMLs must:
- Provide quick access to the loan types it prices online.
- Disclose all lender fees, including points, origination fees, and any fixed-dollar fees, and guarantee them to closing.
- Disclose all third party fees with the best estimates possible, indicating which if any are guaranteed by the UML.
- Provides a clear explanation of its rate lock requirements, and disclose them prominently.
- Disclose all the information about its ARMs needed by shoppers to “make intelligent decisions”.
For example, lender Amerisave aggregates the available offers by other lending institutions, but it also has agreed to disclose its wholesale prices and markups to customers. For example, a recent quote on a $480,000 loan (home value $600,000) gave me a Guaranteed Lender fee of $5,780.00 (1.204%). This value includes all these various fees:
- Application Fee
- Funding Fee
- Administrative Fee
- Transfer Fee
- Origination Fee
- Processing Fee
- Loan Set-up Fee
- Wiring Fee
- Discount Fee
- Flood Certification Fee
- Tax Service Fee
- Underwriting Fee
This assures you that new fees won’t be added or others increased at the last moment, when you’re already stuck. However, it does not include all closing costs paid to third parties like the appraisal, credit report, and title insurance. Here is the current list of certified Upfront Mortgage Lenders, sorted with my favorite at the top:
One potential problem with these is that if the loan you want isn’t very common (like a 30-year fixed, 5/1 ARM), then it may not be available for an instant online quote. Each lender can pick which loans it wishes to openly provide guaranteed quotes for. But overall, these sites are great for seeing what is a competitive price daily.
When I started looking for a loan, essentially I didn’t really care what the salesperson made, I just cared about the final price of my car. That kind of made sense in my mind, so I got quotes from everybody under the sun. Of course, there are several bait and switch tactics that unethical brokers can utilize, so trust and my impressions of each broker did matter. I felt (possibly incorrectly!) that I was educated and knew what to look out for. If they weren’t willing to give me an instant quote based on my criteria then I said thank you and went to the next person on my list.
In the end, I did not actually go through an UMB or UML, but I did use the websites as comparison shopping tools. It turned out that the best price package that I found was also offered also by someone that was a personal referral at a small local bank. (More on that later.) However, I am very happy that these options exist. If anyone has used a UMB or UML, I invite you to share your experiences in the comments!